Monday, August 27, 2012

Romney's tax issues expose his gullibility

By now everybody knows the Romney is filthy rich and refuses to release his tax returns.  By now everybody knows that Romney has parked money in offshore tax havens and a wild diversity of investments.

We are now also aware that Marriott had tax problems when he sat on its board on the Audit Committee for its highly creative tax accounting.  It was essentially the opposite of Bush's maneuver to inflate Harkness Energy's profits.  In that  case they created a dummy corp. to buy assets and get a loss off their books. In this case they bought assets from another of their companies at a highly inflated price so that when they sold that company they could recognize a loss to offset their taxes.  Companies use schemes like this primarily to transfer gains and losses between countries with different tax rates in order to put profits in countries with low tax rates and losses in countries with high tax rates by coming up with fictitious prices for transfers between companies they own in different countries.

This was probably not Romney's scheme personally.  As we look at how he manages his personal finances, however, we see that he seems to have tried every maneuver out there to reduce his taxes, using not one tax haven, but every tax haven; packing $100 million into an IRA, and buying funds that play with derivatives.

That points to something that gets too little attention in the evaluation of the candidate: his gullibility.  He seems to have latched on to any and every scheme out there.

In part this may reflect Mormon culture.  For forty years, the Latter-day Saints have been grappling with claims that Salt Lake City is the "stock fraud" capital of the nation, and high up on the list of other fraud schemes.

Twenty-five years later, Utah continues to be seen as a fraud capital.

Sometimes, they have even been reduced to presenting omnipresent fraud as "good news" or the result of presumed superior enforcement action, as in this story about Utah's higher level of Medicaid fraud than other states:

Today, Utah is the national capital of "multilevel marketing" companies, which sell by getting people to earn money by recruiting friends and neighbors as salesmen instead of running ads or opening stores. That reduces selling overhead, but when the rewards are disproportionately for recruiting salespeople rather than moving product, these programs can become almost like pyramid schemes.

Is this because Mormons are uniquely gullible, willing to believe anything from within their network?  Yes and no.  There are religious people all over the country who are scammed by people introduced to them through church.   The Mormons cultivate a sense of apartness from others that can make them vulnerable to this, as also happens with other religious groups.

 What makes the Mormons different is that first of all, they dominate a state, which isn't true of any other single group.   Second, and most importantly, church offices are unpaid volunteer positions that are handed out to members without any application process or professional screening of candidates.

Thus, a good way to campaign for an office and social status is to help one of the existing officials make money.

This gives a boost to schemes based on the community.   It also means that someone like Romney, a wealthy man who has been told all his life he is the fulfillment of divine prophecies,  and who occupied a high position in the church from a young age, would be the target of many people with ideas to sell.

When it comes to avoiding taxes, Romney appears to have tried all these schemes, from oil wells and S&L mortgages in the eighties to credit default swaps, derivatives schemes, and overseas tax haven funds today.  That means Romney is not a financial mastermind shaving hairs from the tax code, but a gullible guy who will believe anybody who promises to save him taxes.

A Romney White House would likely be filled with all kinds of salesmen promoting odd and dangerous policy schemes.

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